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Hottest ETFs of the Week: Irene Aftermath

by ETF Base on August 28, 2011

It’s been a tumultuous few weeks with everything from continued drama in the Middle East to further contagion in the Euro zone and capping it off with Hurricane Irene. There was a 2008 moment when shares of Bank of America (BAC) continued to crater on fears of a run on the bank until Uncle Warren came to the rescue with a massive $5 Billion cash infusion (after Bank of America indicated they didn’t need capital). While the hurricane was projected to inflict more damage on a personal and financial level, early indications are that it wasn’t all just media hype either, as damages are anticipated to be well into the tens of billions of dollars, creating some additional stimulus spending Congress didn’t have to ask for ranging from millions in unplanned roofing jobs and tree removals to thousands of electrical CAD Services gigs. Here are some of the top performing ETFs from last week in both the conventional and leveraged categories:

Non-Leveraged ETFs

QQQ – NASDAQ Trust – Up 6% – There was a major rally in all US indices Friday. Completely logical given nothing out of Bernanke and a wicked storm upon us. After scratching their heads, investors have attributed it primarily to the lack of bad news out of Bernanke’s statements. With the NASDAQ carrying a higher Beta than blue chips, QQQ bested the S&P500 (SPY) at 4% on the week.

XLF – Financial Select Sector SPDR – Up 6% – Financials got a boost on Wednesday when Bank of America (BAC) soared over 20% at the open following the news that Warren Buffett would provide would be taking a $5 Billion stake in the beleaguered company. He’s always saying don’t bet against America, so I guess he took it literally. Cynics sniped that this just indicates Buffett’s belief that the government will backstop large banks no matter what. When BAC’s shares were cratering, by choosing that point to make such a sizable investment, it surely showed a large risk tolerance – perhaps muted by the thinking that the government would come to the rescue down the road should mortgage loss recognition be worse than anticipated. Nevertheless, this boosted all large financials, pushing XLF up 6% on the week.

CORN – Teucrium Corn Fund – Up 5% – With poor crop yields and substantial storms this season, there’s been a shortage of corn, driving up prices. Year to date, CORN is up 28% and over the prior year period, an astounding 72%. While investing in individual commodities is probably best left to the futures traders, individuals with personal exposure to corn prices may consider this fund as a hedge.

Leveraged ETFs

COWL – Direxion Daily Agribusiness Bull 3x Shares – Up 20% – Similar to the strength in corn, agribusiness in general was up last week, with an especially large move of 8% on Friday for COWL. Note that the trading volume is pretty light on this ETF, with bid-ask spreads somewhat wide. Also always bear in mind that leveraged ETFs lose value over time when the underlying index is flat or volatile.

TYH – Direxion Daily Tech Bull 3x Shs – Up 18%– An 18% move would be somewhat expected here given the 6% move in QQQ during the week. Just bear in mind like I mentioned above that during periods of volatility, even an up underlying sector can result in a losing leveraged ETF. This is more pronounced in high Beta sectors like Technology.

FAS – Direxion Daily Finan. Bull 3X – Up 14% – FAS is the 3X proxy for the financial sector, which was widely boosted by the BAC news and a lack of bad news out of Bernanke’s Friday statements. The Financials have been very volatile since the housing decline began and FAS is down 51% year to date. A more conservative way to play financials or a stabilization in real estate while realizing a sizable yield would be to invest in quality Real Estate Investment Trusts (massive REIT list). Investors are forced to take more risk since high yield safe investments are few and far between in a zero interest rate world, but there are still attractive risk-adjusted returns to be had related to financials, especially Preferred shares often yielding 7% or more.

Disclosure: No long positions in any ETFs referred to in this article. Short Paired ETF position in FAS which is explained further author’s Portfolio Updates.